1. SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 5 Energy Regulation Module 5: STRUCTURE, COMPOSITION AND ROLE OF AN ENERGY REGULATOR

2. SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 5 Module overview No ‘perfect’ regulatory system Continuous improvements and adjustments are necessary Clarity of the relationship between government and regulator is crucial Three basic principles: –Independence –Transparency –Investor and consumer protection

3. SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 5 Module aims To introduce the basic principles along which an effective regulatory system is built To provide an overview of the issues of independence, transparency and consumer/investor protection To show that there is no ‘ideal’ model or structure for a regulatory body To outline the basic functions and roles of a regulator To outline some basic compositions of regulators and the resources they will need To introduce some basic recommendations towards building a credible regulatory environment

4. SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 5 Module learning outcomes To understand the role of the regulator To describe the basic principles of independence, transparency and consumer and investor protection To describe the main functions of a regulator To appreciate the main issues involved in setting up a regulatory body To understand the importance of a credible regulatory environment To be able to list some measures that increase regulatory transparency

5. SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 5 Principles of Regulation Independence –Regulatory autonomy or independence, usually means having a regulatory body free from influence from external sources in its decision making –Government, private sector, the public should not influence

6. SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 5 Principles of Regulation (2) Transparency –Transparency means transparent regulatory decision- making and robustness, expediency, quality and predictability of regulatory decision-making –Regulatory transparency is more important in weak institutional environments with less investor confidence

7. SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 5 Principles of Regulation (3) Transparency: –is crucial to the legitimacy –is key to attracting and retaining investment –creates confidence One method for the regulator to promote transparency is to prepare and distribute to stakeholders and the general public an annual report on regulatory activities and sector performance.

8. SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 5 Principles of Regulation (4) Investor and consumer protection –balance the interests of the government electricity (or energy) service suppliers customers –The government is subject to short-term political pressures from various constituencies –Suppliers want high returns, and an unchecked monopolist will charge too high a price –Today’s customers, conversely, want reliable electricity at low prices

9. SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 5 Regulation Models Models: –Government –Semi-independent –Independent Regulating the energy industry: –Central government departments –Specialist utility or energy regulatory agencies –Generalist competition regulators –Environmental regulators –Local authorities –Courts and tribunals

10. SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 5 Why regulate the Electricity Sector? to constrain the exercise of monopoly power by incumbent suppliers to stop subsidies to the electricity sector and thereby reduce drain on the Treasury to provide incentives for operating efficiency and quality of service to optimise the structure of the sector to promote least-cost system expansion to stimulate energy conservation and R&D

11. SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 5 Purpose of the Regulator Often seen as ‘balancing’ of interests but unless benefits are also created under the regulatory regime (i.e. improved sector performance), the system is unlikely to be sustainable The role of the regulator is: –To protect consumers from abuse by firms with substantial market power; –To support investment by protecting investors from arbitrary government action; and –To promote economic efficiency

12. SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 5 Setting up a Regulator A well functioning regulatory agency needs : –adequate resources –an appropriate legal mandate –clear agency values and operating procedures

13. SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 5 Setting up a Regulator (2) Resources: –Manpower to monitor, conduct, process and enforce rules and sanction systems –Investment in information technology to facilitate communication and therefore also the effectiveness of decision-making –Human capital, where average lower educational achievement affects both the quality of decision-making by officials and the ability of ordinary citizens to initiate or contribute to the enforcement process

14. SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 5 Values and Principles Communication Consultation Consistency Predictability Flexibility Independence Effectiveness and Efficiency Accountability Transparency

15. SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 5 Key Functions Issuing licenses related to regulatory functions Setting performance standards Monitoring the performance of regulated firms Establishing the level and structure of tariffs Establishing a Uniform Accounting System Arbitrating disputes among stakeholders Performing management audits on regulated firms (usually via independent consultancy) Developing human resources for the IRC Reporting sector and IRC activities to the appropriate government authority.

16. SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 5 Communication Key stakeholders: –Consumers –Utilities and energy companies End users: –Newspaper adverts and articles –Radio and TV programmes and interviews –Production and distribution of booklets –Creation of ‘Energy Advice Centres’ to operate at a local level Clear procedures and time frames: –Announcements by the regulator to the stakeholders –Simple communications: e.g. requests for information –Stakeholder consultations –Requests for clarifications –Complaints Dedicated communication staff

17. SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 5 Evaluating a Regulatory System Extent to which regulatory decisions are published Speed at which the regulator makes decisions Ability (and willingness) of regulator to procure external independent advice when required Quality of Chief Executive of regulatory agency Rate of staff turnover, particularly for Chief Executive and key managers / specialists.

18. SUSTAINABLE ENERGY REGULATION AND POLICY-MAKING FOR AFRICA Module 5 CONCLUSIONS No ‘quick and easy’ regulatory model that can be applied Best practice principles are emerging from international experience Emphasis on independence of the regulator from external influence and transparent regulatory decisions A regulatory agency’s structure must permit it to adapt effectively to changing technological and market conditions. There must exist the political will allowing regulators to ‘do their jobs’